At the time of writing, the debt ceiling negotiations in the United States are in a state of flux. One idea that has been floating around is that the U.S. should just let the debt limit kick in, and have a “cold turkey” balanced budget. In other words, cut back spending to match taxes as they come in, so the amount of debt outstanding does not rise. As the chart above shows, even if such a policy was operationally possible (which I doubt), it would not merely be bad, it would be a disaster.
To explain these charts: they shows economic variables for a simulated economy (using a simple Stock-Flow Consistent (SFC) model I developed)....
Bond Economics
Why A Hard Debt Limit Is A Very Bad Idea
Brian Romanchuk
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